One of the great advantages of living in Canada is the generous government benefits system.
Had a baby? Take some tax-free child benefits.
Lost your job? Apply for employment insurance benefits (EI.)
Making low income? There are multiple assistance program for you. 🙂
But one dilemma facing the financial independence/early retire community is whether or not we should take advantage of these programs ourselves.
Should you accept government benefits even if you’re fairly well off?
I don’t have any moral issues using available government programs, such as child benefits for parents or the guaranteed income supplement (GIS) for seniors.
Becoming FI to retire at an early age requires a lot of planning, foresight, and delayed gratification.
All that requires work. And those who pursue it has to manage a lot of complex decisions which isn’t easy. Being strategic, having patience, and exercising will power have tremendous economic value. People who exhibit these traits are certainly well compensated for in the labour market. So if you practice these habits to reach FI then you deserve it. 🙂
Choosing to take the FIRE journey doesn’t magically give you a special privilege or unfair advantage. It’s primarily your effort, determination and personal choices that allow you to retire early. You are playing the same game as everyone else, and have simply chosen a strategy that hopefully aligns with your values.
So in terms of fairness, if you structure your retirement such that you receive government benefits, then that’s your prerogative!
You are not breaking any rules. The fact that you may be a millionaire does not abdicate your right to receive benefits. It merely indicates that you are compensated for your planning, sacrifice, and perseverance.
In fact, it would actually be unethical to arbitrarily punish someone for achieving their financial goals.
The famous Stanford marshmallow experiment offered children a choice between indulging in 1 treat immediately, or 2 treats if they waited for a period of time.
Imagine if a child waited. The adult then comes back holding another marshmallow in his hand, but then…
I don’t think that’s very fair. The kid will probably grow up to become a James Bond villain.😅
You deserve the fruits of your labour
People who reach FI tend to pay higher taxes than the average person. Early retirees often have to drawn down from portfolios worth over $1 million. That means they probably earned six-figure salaries during their working years to save and accumulate that level of wealth. Any government benefits they receive in retirement would be just a fraction of their income tax contributions over the time of their careers. 🙂
If you make high income, you pay high taxes. If you make low income, you receive government assistance. That’s how taxes work. Income planning simply tries to navigate this system as part of a larger financial plan.
Even contributing to an RRSP in order to reduce your taxable income is considered tax avoidance, according to tax lawyers. But that doesn’t mean you should feel bad about doing it.
Many dividend growth investors like myself don’t actually need the eligible dividend tax credit. But we probably benefit from it more than anyone else, lol. That’s just how we planned, based on how the tax system works.
What matters is how you use it
Ultimately it comes down to what you’re doing with the government benefits once you have it.
The FI community tends to be people who are budget-conscious, resourceful, and have a positive influence on their community.
It’s difficult for the Federal government to allocate funds efficiently. They don’t know what’s going on in your neighbourhood. It would be more effective for someone from a local community to allocate the money instead.
Investors who are FIRE can take government benefits, and repurpose them more meaningfully by spending on things that can actually make a real impact, such as…
- Tip 25% to a local waiter for exceptional service.
- Buy gasoline and volunteer to drive the kids and their friends for a class field trip.
- Help buy some supplies for a neighborhood BBQ.
- Support a struggling small business down the street.
Folks in the FIRE community are fiscally disciplined and demonstrate sound financial judgement. That’s how they got to FIRE. 🙂
They tend to be open minded, and generous with their time and resources. Wealth is created by providing value to society. A high savings rate typically requires a high income. And the most common way to earn a high income is to produce a tremendous amount of value to someone else.
So I don’t see any problems for a FIRE household to accept government benefits.
It’s essentially placing public funds into the hands of community oriented people who have a successful track record of mindful spending, fiscal sustainability, and producing meaningful value.
These FI individuals will then spend and redistribute this money into their local economies, providing value where it is most deserved, making a difference in their communities.
If that’s not a favourable use of tax payer’s money then I don’t know what is. 😎
Random Useless Fact:
According to Statistics Canada, chicken in grocery stores costs 10% more now than at the start of the year.
Liquid, you are pushing the boundaries lately, LOL! I haven’t felt guilty about taking the government benefits that have come to us thus far, despite being “wealthy” compared to most Canadians. We received the Additional CESG grants for our kids’ RESPs in our early years, when my husband earned less money and I stopped working. And we’re now receiving a little bit more CCB because of the interest deductions from using leveraged investing. As you state, we have paid our fair share of income taxes. I feel the benefits we’ve received to this point have been fair and not unjust. As for those who artificially decrease their income in order to receive more benefits, I don’t feel strongly about it either way. It’s such a grey area. I neither judge others who take full advantage nor do I dissuade those who refuse the benefits. I think it’s a personal decision that each person should be free to make for themselves. However, I do agree with your suggestion that, for those who accept the extra benefits (but who are already wealthy and don’t really need them) it would, socially, be the right thing to do, to pay it forward in some… Read more »
Wow. This is a very well thought out comment, Chrissy. 🙂 I would consider my wife and I as “wealthy” compared to most Canadians too. When it comes time I will certainly make use of the CESG grants. I agree with you a lot of this discussion happens in a grey area. It’s difficult to know what everyone’s reasons are for what they do.
I think it’s important to note that in a lot of cases we aren’t even given the option to accept the government benefits either way… they just send you a cheque. Realistically we could probably do away with a lot of these programs and just pay less tax, rather than having the government re-distribute money so people think they’re getting a bonus cheque. There are also no checks or balances on how that money is spent in most cases anyway, like Canada Child Benefit, CERB…etc.
I like the controversial posts too haha 🙂
I also think we should do away with a lot of unnecessary government programs and just pay less tax overall. As humans we are really good at justifying our beliefs and actions. The question is are those justification valid and fair. I guess it depends on who you ask. 🙂
We only got the CCB the first two years or so and then that’s it no more, income too high. So we gladly took it when it was available even though it wasn’t very much (like a few boxes of diapers hahha). So it’s not even an option for us now unfortunately.
I like how some benefits are not income dependent like CESG.
I guess you could look at it from a point of view too that Canada disincentivizes people to work hard and earn money.
That’s why those who barely work sit on the fence about these things.
I am also a hard working woman. I did not even take maternity leave for my two kids. I was self employed.
That’s an amazing accomplishment. Your kids must be proud of their mom. 🙂
That’s too bad you’re not receiving CCB anymore, GYM. Maybe if you retire early before your kid grows up you can still get some, lol. It’s true that Canada doesn’t have the best incentives for people to work hard. That’s why we have brain drain. If you’re smart and want to be world class in programming or medicine you go to the United States. 🙂
If you’re paying into the system, I don’t think there’s anything wrong with taking some government benefits if you do qualify.
Makes perfect since to me. If you have a lot of money, chances are you’ve already paid your fair share to the country in the form of taxes, and also bringing value to the people you worked with. 🙂
The idea that people shouldn’t utilize government benefits if they’re already rich is a very slippery slope. There are a lot of public goods and subsidized programs such as libraries, and schools that should be for everyone. Should rich people not be allowed to use those institutions?
In my opinion the biggest issue or worry is about whether these government benefits are being misused or abused. In Canadian context I hear lot of conversations among working people/professionals (all ages) where they lament about how people are using some loopholes to misuse or abuse benefits such as disability, unemployment, other assistance, etc. I really dont know how far this is true or how statistically significant these are. This issue has become bigger last years since start of virus health issue. This is not about genuine people who deserve and get benefits and some grey area/border line cases. The issue I hear about is a straight misuse/abuse of system where X gets benefits he/she is not entitled at all because X knows how to play the system.
Taxing the rich is a debatable topic but it could help partly to fund some social development. Some of the rich have methods or ways to minimize, eliminate, avoid, evade tax, etc.
So middle class the larger %age of population need to be taxed for revenue. A better way would be to tax expenses but it looks like this category is also saturated due to growing social subsidies.
These are great points Sridhar. I agree that taxing spending would be more fair. It still won’t be perfect but it’s harder to find loopholes for things like sales tax. I also think a flat tax would simplify things a lot. 🙂
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